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Why Gold Is Up $85


Simple math drove yellow metal's biggest one-day move.

Why is gold up $85 today (its biggest one-day move in history from both a dollar perspective and in percentage terms)?

I answered that question back on September 5th.

Given the continued collapse in the gold mining shares, I thought I'd see where we are in the gold trade.

For the third week in a row, gold has refused to take out its August 15th low, even as the euro has plunged to another new low and the US Dollar Index has made another new high.

Click to enlarge

At some point, people will begin to connect the dots that gold isn't "the euro" - and it isn't a weak dollar play, either. And that's when the gold complex is going to explode, including the gold mining shares that appear at present to be the most hated equity sector on the planet (even more than subprime mortgage lenders, apparently).

However, I should add that somebody sure seems to be buying the gold mining equities from the hedge funds that are coughing them up. The Rydex gold equity fund has seen an inflow equal to nearly 50% of its assets over the past 5 days, and I understand other gold equity mutual funds are seeing similar inflows. That's the biggest inflow in the face of falling gold mining stock prices that I can recall seeing in years.

Click to enlarge

(To read more of Bad News For Financials, Good News for Gold, click here.)

Now fast forward to today: In my opinion, very soon, the whole planet is going to be printing money together to try and save the system and gold is going to melt up in all fiat confetti currencies.

Today's move in gold has nothing to do with panic or fear. It's simply math. The debt overhang is too massive. If the financial system is to operate and remain a "going concern," then massive "money printing" must occur. It's very simple.

Default or debase are the only two options, and both lead to the same place: more inflation.

The fact that gold exploded $85 today signals that the market may finally be coming to grips with this fact.

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No positions in stocks mentioned.

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